This study examines the cultural‐transmission effects of compensatory‐discrimination affirmative action policies on work‐ethic preference dynamics for a population in a caste‐based segregated economy in which some high‐paid jobs are reserved for historically disadvantaged lower‐caste individuals. Cultural attitudes toward preferences for work‐loving and leisure‐loving traits evolve endogenously. The compensatory‐discrimination policies affect differently the preference dynamics for insiders (entitled to employment quota) and outsiders (not entitled to employment quota). Efficient and inefficient equilibria are possible, with larger or smaller proportions of individuals with a work ethic among the insider and outsider populations. The model shows that the commonly conceived conclusion that a job reservation policy benefits a disadvantaged group at the cost of efficiency and economic growth is not a necessary outcome. (JEL A12, C62, J71)